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Radian Reports Third Quarter 2012 Financial Results

Radian Group Inc. (NYSE: RDN) today reported net income for the quarter
ended September 30, 2012, of $14.3 million, or $0.11 per diluted share,
which included combined losses from the change in fair value of
derivatives and other financial instruments of $41.8 million and net
gains on investments of $84.7 million. This compares to net income of
$183.6 million, or $1.37 per diluted share, which included combined net
gains from the change in fair value of derivatives and other financial
instruments of $206.6 million and net gains on investments of $81.6
million, for the prior-year quarter. Book value per share at September
30, 2012, was $6.85.

“I am pleased with the strong progress we have made against our top
priorities at Radian by writing new, high-quality mortgage insurance
business and diligently managing our legacy risk,” said Chief Executive
Officer S.A. Ibrahim. “In the third quarter, we successfully improved
our risk-to-capital position and wrote more new business than we did
throughout the first nine months of last year.”

Ibrahim continued, “Our new business volume coupled with the continued
decline in our delinquent loan inventory has improved the credit
composition of our mortgage insurance book and better positions Radian
for a future return to profitability.”

CAPITAL AND LIQUIDITY UPDATE

Radian Guaranty's risk-to-capital ratio improved to 20.1:1 as of
September 30, 2012, compared to 21.0:1 as of June 30, 2012, and 20.6:1
as of March 31, 2012.

The improvement in the risk-to-capital ratio from June 30, 2012,
was primarily driven by investment gains partially offset by a
small level of operating losses.

Radian expects to remain below a 25:1 risk-to-capital ratio for
the remainder of 2012. Based on this and existing waivers of other
risk-based capital requirements in certain states, Radian expects
to continue to write all of its mortgage insurance business in
Radian Guaranty, its principal mortgage insurance subsidiary,
during this period.

In order to proactively manage its risk-to-capital position,
Radian Guaranty entered into a quota share reinsurance agreement
earlier this year with a third-party reinsurance provider. Radian
agreed to cede 20 percent of new insurance written beginning with
the business written in the fourth quarter of 2011, which
represented $1.4 billion of ceded risk in force as of September
30, 2012. In August, Radian and the reinsurer mutually agreed to
increase the amount of mortgage insurance risk ceded under the
agreement to approximately $1.6 billion and last week agreed to
the terms of a new quota share arrangement with incremental ceded
risk expected to range between $750 million and $2 billion. This
new arrangement remains subject to Freddie Mac approval, as was
the case with the previous agreement.

As of September 30, 2012, Radian Guaranty's statutory capital
increased to $1.0 billion, compared to $923.5 million in the
second quarter of 2012 and $919.9 million in the first quarter of
2012.

Radian Group maintains approximately $330 million of currently
available liquidity. There is approximately $80 million of the
company's outstanding debt due in February 2013.

THIRD QUARTER HIGHLIGHTS

New mortgage insurance written (NIW) was $10.6 billion for the
quarter, compared to $8.3 billion in the second quarter of 2012 and
$4.1 billion in the prior-year quarter.

The product mix of Radian's NIW has continued the recent shift to
an increased level of monthly premium business. Of the $25.4
billion in new business written in the first nine months of 2012,
66 percent was written with monthly premiums and 34 percent with
single premiums. This compares to a mix of 61 percent monthly
premiums and 39 percent single premiums in the first nine months
of 2011.

The Home Affordable Refinance Program (HARP) accounted for $2.7
billion of insurance not included in Radian Guaranty's NIW total
for the quarter. This compares to $2.4 billion in the second
quarter of 2012 and $762.0 million in the prior-year quarter. As
of September 30, 2012, approximately eight percent of the
company's total primary mortgage insurance risk in force had
successfully completed a HARP refinance.

NIW continued to consist of loans with excellent risk
characteristics.

The mortgage insurance provision for losses was $171.8 million in the
third quarter of 2012, compared to $208.1 million in the second
quarter and $276.6 million in the prior-year period. Mortgage
insurance loss reserves were approximately $3.0 billion as of
September 30, 2012, which was down from $3.2 billion as of June 30,
2012, and also as of September 30, 2011. First-lien reserves per
primary default were $28,561 as of September 30, 2012, compared to
$28,410 as of June 30, 2012, and $25,346 as of September 30, 2011.

The total number of primary delinquent loans decreased by 4 percent in
the third quarter from the second quarter of 2012, and by 14 percent
from the third quarter of 2011. The primary mortgage insurance
delinquency rate decreased to 12.6 percent in the third quarter of
2012, compared to 13.3 percent in the second quarter and 15.2 percent
in the third quarter of 2011. The company's primary risk in force on
defaulted loans was $4.4 billion in the third quarter, compared to
$4.6 billion in the second quarter and $5.2 billion in the third
quarter of 2011.

Total mortgage insurance claims paid were $272.4 million in the third
quarter, compared to $263.4 million in the second quarter and $329.9
million in the third quarter of 2011. The company expects mortgage
insurance net claims paid of approximately $250 million in the fourth
quarter and $1.0 billion for the full-year 2012.

Radian Asset Assurance Inc. continues to serve as an important source
of capital support for Radian Guaranty and is expected to continue to
provide Radian Guaranty with dividends over time.

As of September 30, 2012, Radian Asset had approximately $1.1
billion in statutory surplus with an additional $700 million in
claims-paying resources.

Radian Asset has paid a total of $384 million in dividends to
Radian Guaranty since 2008, and expects to pay another dividend of
approximately $40 million in 2013.

Since June 30, 2008, Radian Asset has successfully reduced its
total net par exposure by 66 percent to $39 billion as of
September 30, 2012, including large declines in the riskier
segments of the portfolio.

CONFERENCE CALL

Radian will discuss these items in its conference call today, Thursday,
November 1, at 10:00 a.m. Eastern time. The conference call will be
broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts
or at www.radian.biz.
The call may also be accessed by dialing 800-398-9386 inside the U.S.,
or 612-332-0523 for international callers, using passcode 267306 or by
referencing Radian.

A replay of the webcast will be available on the Radian website
approximately two hours after the live broadcast ends for a period of
one year. A replay of the conference call will be available
approximately two and a half hours after the call ends for a period of
two weeks, using the following dial-in numbers and passcode:
800-475-6701 inside the U.S., or 320-365-3844 for international callers,
passcode 267306.

In addition to the information provided in the company's earnings news
release, other statistical and financial information, which is expected
to be referred to during the conference call, will be available on
Radian's website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.

ABOUT RADIAN

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides
private mortgage insurance and related risk mitigation products and
services to mortgage lenders nationwide through its principal operating
subsidiary, Radian Guaranty Inc. These services help promote and
preserve homeownership opportunities for homebuyers, while protecting
lenders from default-related losses on residential first mortgages and
facilitating the sale of low-downpayment mortgages in the secondary
market. Additional information may be found at www.radian.biz.

The impact of the Assured Transaction for the
Nine Months Ended September 30, 2012, was as follows:

(In millions)

Statement of Operations

Decrease in premiums written

$

(119.8

)

Decrease in premiums earned

$

(22.2

)

Increase in change in fair value of derivative instruments—gain

1.4

Gain on sale of affiliate

7.7

Increase in amortization of policy acquisition costs

(15.7

)

Decrease in pre-tax income

$

(28.8

)

Balance Sheet

Decrease in:

Cash

$

93.6

Deferred policy acquisition costs

26.2

Accounts and notes receivable

1.1

Derivative assets

0.6

Unearned premiums

71.6

Derivative liabilities

2.1

Increase in other assets

19.1

Radian Group Inc. and Subsidiaries

Financial Guaranty Supplemental Information

Exhibit H

September 30

December 31

September 30

($ in thousands, except ratios)

2012

2011

2011

Statutory Information:

Capital and surplus

$

1,139,842

$

974,874

$

1,038,290

Contingency reserve

290,877

421,406

431,715

Qualified statutory capital

1,430,719

1,396,280

1,470,005

Unearned premium reserve

275,172

448,669

469,956

Loss and loss expense reserve

(50,089

)

161,287

13,026

Total statutory policyholders' reserves

1,655,802

2,006,236

1,952,987

Present value of installment premiums

107,046

148,641

162,766

Total statutory claims paying resources

$

1,762,848

$

2,154,877

$

2,115,753

Net debt service outstanding

$

48,302,271

$

88,202,630

$

91,717,192

Capital leverage ratio (1)

34

63

62

Claims paying leverage ratio (2)

27

41

43

Net par outstanding by product:

Public finance direct

$

10,288,776

$

13,838,427

$

14,530,364

Public finance reinsurance

5,590,189

19,097,057

19,789,862

Structured direct

22,360,606

34,760,869

35,939,194

Structured reinsurance

800,936

1,492,859

1,630,317

Total (3)

$

39,040,507

(4)

$

69,189,212

$

71,889,737

(1)

The capital leverage ratio is derived by dividing net debt
service outstanding by qualified statutory capital.

(2)

The claims paying leverage ratio is derived by dividing net
debt service outstanding by total statutory claims paying

resources.

(3)

Included in public finance net par outstanding is $0.9 billion,
$1.4 billion and $1.6 billion at September 30, 2012,

December 31, 2011, and September 30, 2011, respectively, for
legally defeased bond issues where our financial guaranty policy
has

not been extinguished but cash or securities have been
deposited in an escrow account for the benefit of bondholders.

(4)

Reductions in par caused by the following: $15.6 billion in
connection with the Assured Transaction, $10.2 billion in
connection

with the CDO terminations, and $1.2 billion in connection with
the Commutation Transactions.

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit I

Quarter Ended

Nine Months Ended

September 30

September 30

2012

2011

2012

2011

($ in millions)

$

%

$

%

$

%

$

%

Primary new insurance written

Prime

$

10,594

100.0

%

$

4,104

99.9

%

$

25,384

99.9

%

$

8,967

99.9

%

Alt-A

1

—

—

—

2

—

—

—

A minus and below

3

—

3

0.1

12

0.1

6

0.1

Total Flow

$

10,598

100.0

%

$

4,107

100.0

%

$

25,398

100.0

%

$

8,973

100.0

%

Total primary new insurance written by
FICO score

>=740

$

8,067

76.1

%

$

3,164

77.0

%

$

19,313

76.0

%

$

7,091

79.0

%

680-739

2,259

21.3

892

21.7

5,475

21.6

1,828

20.4

620-679

272

2.6

51

1.3

610

2.4

54

0.6

Total Flow

$

10,598

100.0

%

$

4,107

100.0

%

$

25,398

100.0

%

$

8,973

100.0

%

Percentage of primary new insurance
written

Monthly premiums

66

%

56

%

66

%

61

%

Single premiums

34

%

44

%

34

%

39

%

Refinances

35

%

28

%

38

%

34

%

LTV

95.01% and above

1.3

%

2.2

%

1.4

%

1.7

%

90.01% to 95.00%

42.5

%

38.0

%

41.5

%

35.3

%

ARMS

Less than 5 years

<1%

<1

%

<1

%

<1

%

5 years and longer

1.7

%

6.0

%

2.2

%

5.9

%

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit J

September 30

September 30

2012

2011

($ in millions)

$

%

$

%

Primary insurance in force

Flow

$

123,438

91.4

%

$

111,493

89.5

%

Structured

11,622

8.6

13,143

10.5

Total Primary

$

135,060

100.0

%

$

124,636

100.0

%

Prime

$

117,509

87.0

%

$

104,185

83.6

%

Alt-A

10,883

8.1

12,775

10.2

A minus and below

6,668

4.9

7,676

6.2

Total Primary

$

135,060

100.0

%

$

124,636

100.0

%

Primary risk in force

Flow

$

30,480

92.3

%

$

27,473

90.7

%

Structured

2,540

7.7

2,825

9.3

Total Primary

$

33,020

100.0

%

$

30,298

100.0

%

Flow

Prime

$

27,372

89.8

%

$

23,813

86.7

%

Alt-A

1,928

6.3

2,275

8.3

A minus and below

1,180

3.9

1,385

5.0

Total Flow

$

30,480

100.0

%

$

27,473

100.0

%

Structured

Prime

$

1,482

58.3

%

$

1,651

58.4

%

Alt-A

571

22.5

641

22.7

A minus and below

487

19.2

533

18.9

Total Structured

$

2,540

100.0

%

$

2,825

100.0

%

Total

Prime

$

28,854

87.4

%

$

25,464

84.1

%

Alt-A

2,499

7.6

2,916

9.6

A minus and below

1,667

5.0

1,918

6.3

Total Primary

$

33,020

100.0

%

$

30,298

100.0

%

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit K

September 30

September 30

2012

2011

($ in millions)

$

%

$

%

Total primary risk in force by FICO score

Flow

>=740

$

15,141

49.7

%

$

11,566

42.1

%

680-739

9,449

31.0

9,213

33.5

620-679

5,022

16.5

5,671

20.7

<=619

868

2.8

1,023

3.7

Total Flow

$

30,480

100.0

%

$

27,473

100.0

%

Structured

>=740

$

674

26.5

%

$

752

26.6

%

680-739

736

29.0

822

29.1

620-679

678

26.7

756

26.8

<=619

452

17.8

495

17.5

Total Structured

$

2,540

100.0

%

$

2,825

100.0

%

Total

>=740

$

15,815

47.9

%

$

12,318

40.7

%

680-739

10,185

30.8

10,035

33.1

620-679

5,700

17.3

6,427

21.2

<=619

1,320

4.0

1,518

5.0

Total Primary

$

33,020

100.0

%

$

30,298

100.0

%

Total primary risk in force by LTV

85.00% and below

$

3,092

9.3

%

$

2,731

9.0

%

85.01% to 90.00%

12,679

38.4

11,717

38.7

90.01% to 95.00%

12,473

37.8

10,390

34.3

95.01% and above

4,776

14.5

5,460

18.0

Total

$

33,020

100.0

%

$

30,298

100.0

%

Total primary risk in force by policy year

2005 and prior

$

5,947

18.0

%

$

7,207

23.8

%

2006

2,827

8.6

3,276

10.8

2007

6,239

18.9

7,175

23.7

2008

4,715

14.3

5,376

17.7

2009

2,200

6.7

2,812

9.3

2010

1,887

5.7

2,354

7.8

2011

3,181

9.6

2,098

6.9

2012

6,024

18.2

—

—

Total

$

33,020

100.0

%

$

30,298

100.0

%

Primary risk in force on defaulted loans

$

4,417

$

5,210

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit L

September 30

September 30

2012

2011

($ in millions)

$

%

$

%

Percentage of primary risk in force

Refinances

31

%

31

%

ARMS

Less than 5 years

4

%

5

%

5 years and longer

5

%

7

%

Pool risk in force

Prime

$

1,432

76.8

%

$

1,652

76.6

%

Alt-A

108

5.8

126

5.9

A minus and below

324

17.4

378

17.5

Total

$

1,864

100.0

%

$

2,156

100.0

%

Total pool risk in force by policy year

2005 and prior

$

1,684

90.3

%

$

1,877

87.1

%

2006

79

4.2

113

5.2

2007

89

4.8

134

6.2

2008

12

0.7

32

1.5

Total pool risk in force

$

1,864

100.0

%

$

2,156

100.0

%

Other risk in force

Second-lien

1st loss

$

85

$

107

2nd loss

23

31

NIMS

14

38

1st loss-Hong Kong primary mortgage insurance

45

72

Total other risk in force

$

167

$

248

Risk to capital ratio-Radian Guaranty only

20.1:1

(1)

21.4:1

(1) Preliminary

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit M

Quarter Ended

Nine Months Ended

September 30

September 30

($ in thousands)

2012

2011

2012

2011

Net claims paid

Prime

$

169,641

$

180,523

$

467,093

$

644,738

Alt-A

45,058

57,244

121,970

220,514

A minus and below

28,042

37,015

85,234

134,394

Total primary claims paid

242,741

274,782

674,297

999,646

Pool

26,546

52,771

71,846

145,470

Second-lien and other

3,111

2,342

8,043

8,961

Subtotal

272,398

329,895

754,186

1,154,077

Impact of first-lien terminations

—

—

—

38,198

Impact of captive terminations

—

—

(148

)

(1,166

)

Impact of second-lien terminations

—

—

—

16,550

Total

$

272,398

$

329,895

$

754,038

$

1,207,659

Average claim paid (1)

Prime

$

48.0

$

51.3

$

48.6

$

49.6

Alt-A

59.9

61.8

58.6

61.1

A minus and below

38.1

43.1

38.0

40.1

Total primary average claims paid

48.4

51.8

47.9

50.1

Pool

66.2

79.8

66.6

77.1

Second-lien and other

29.6

25.7

27.5

28.0

Total

$

49.3

$

54.4

$

48.8

$

52.1

Average primary claim paid (2) (3)

$

50.8

$

55.8

$

50.5

$

55.1

Average total claim paid (2) (3)

$

51.5

$

57.9

$

51.2

$

56.5

Loss ratio - GAAP basis

96.1

%

169.2

%

117.5

%

186.9

%

Expense ratio - GAAP basis

28.2

%

26.9

%

25.7

%

25.4

%

124.3

%

196.1

%

143.2

%

212.3

%

Reserve for losses by category

Prime

$

1,693,579

$

1,655,992

Alt-A

570,055

622,568

A minus and below

355,018

368,034

Reinsurance recoverable (4)

89,801

160,233

Total primary reserves

2,708,453

2,806,827

Pool insurance

327,020

397,919

Total 1st lien reserves

3,035,473

3,204,746

Second lien

8,203

10,074

Other

3,030

34

Total reserves

$

3,046,706

$

3,214,854

1st lien reserve per default (5)

Primary reserve per primary default

$

28,561

$

25,346

Primary reserve per default excluding IBNR

26,100

24,436

Pool reserve per pool default (6)

17,538

15,325

Total 1st lien reserve per default

26,750

23,443

(1)

Calculated net of reinsurance recoveries and without giving
effect to the impact of first-lien, second-lien and captive
terminations.

(2)

Calculated without giving effect to the impact of terminations
of captive reinsurance and first- and second-lien transactions.

(3)

Before reinsurance recoveries.

(4)

Represents ceded losses on captive transactions and Smart Home.

(5)

Calculated as total reserves divided by total defaults.

(6)

If calculated before giving effect to deductibles and stop
losses in pool transactions, the pool reserve per default at
September 30,

2012 and 2011, would be $27,842 and $26,513, respectively.

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit N

September 30

December 31

September 30

2012

2011

2011

Default Statistics

Primary Insurance:

Flow

Prime

Number of insured loans

608,765

569,190

563,226

Number of loans in default

55,859

65,238

64,426

Percentage of loans in default

9.18

%

11.46

%

11.44

%

Alt-A

Number of insured loans

39,274

44,355

45,818

Number of loans in default

12,254

14,481

14,832

Percentage of loans in default

31.20

%

32.65

%

32.37

%

A minus and below

Number of insured loans

36,347

40,884

42,246

Number of loans in default

11,273

13,560

13,749

Percentage of loans in default

31.01

%

33.17

%

32.55

%

Total Flow

Number of insured loans

684,386

654,429

651,290

Number of loans in default

79,386

93,279

93,007

Percentage of loans in default

11.60

%

14.25

%

14.28

%

Structured

Prime

Number of insured loans

38,427

41,248

42,249

Number of loans in default

5,510

6,308

6,229

Percentage of loans in default

14.34

%

15.29

%

14.74

%

Alt-A

Number of insured loans

16,893

18,484

18,990

Number of loans in default

4,809

5,563

5,745

Percentage of loans in default

28.47

%

30.10

%

30.25

%

A minus and below

Number of insured loans

14,505

15,477

15,807

Number of loans in default

5,126

5,711

5,759

Percentage of loans in default

35.34

%

36.90

%

36.43

%

Total Structured

Number of insured loans

69,825

75,209

77,046

Number of loans in default

15,445

17,582

17,733

Percentage of loans in default

22.12

%

23.38

%

23.02

%

Total Primary Insurance

Prime

Number of insured loans

647,192

610,438

605,475

Number of loans in default

61,369

71,546

70,655

Percentage of loans in default

9.48

%

11.72

%

11.67

%

Alt-A

Number of insured loans

56,167

62,839

64,808

Number of loans in default

17,063

20,044

20,577

Percentage of loans in default

30.38

%

31.90

%

31.75

%

A minus and below

Number of insured loans

50,852

56,361

58,053

Number of loans in default

16,399

19,271

19,508

Percentage of loans in default

32.25

%

34.19

%

33.60

%

Total Primary

Number of insured loans

754,211

729,638

728,336

Number of loans in default

94,831

110,861

110,740

Percentage of loans in default

12.57

%

15.19

%

15.20

%

Pool insurance

Number of loans in default

18,646

21,685

25,966

Radian Group Inc. and Subsidiaries

Mortgage Insurance Supplemental Information

Exhibit O

Quarter Ended

Nine Months Ended

September 30

September 30

($ in thousands)

2012

2011

2012

2011

Net Premiums Written

Primary and Pool Insurance

$

209,445

$

177,642

$

587,762

$

521,455

Second-lien

452

565

1,445

1,777

International

(7

)

8

54

23

Total Net Premiums Written - Insurance

$

209,890

$

178,215

$

589,261

$

523,255

Net Premiums Earned

Primary and Pool Insurance

$

177,929

$

161,779

$

520,308

$

507,636

Second-lien

452

565

1,445

1,777

International

304

1,092

1,146

4,482

Total Net Premiums Earned - Insurance

$

178,685

$

163,436

$

522,899

$

513,895

1st Lien Captives

Premiums ceded to captives

$

5,327

$

7,068

$

18,045

$

21,921

% of total premiums

2.8

%

4.1

%

3.3

%

4.1

%

IIF included in captives (1)

7.1

%

9.5

%

RIF included in captives (1)

6.9

%

9.3

%

Quota Share Reinsurance ("QSR")

QSR ceded premiums written

$

16,378

$

41,855

% of premiums written

7.1

%

6.5

%

QSR ceded premiums earned

$

5,291

$

8,389

% of premiums earned

2.8

%

1.5

%

Ceding commissions

$

4,095

$

10,464

RIF included in QSR (2)

$

1,408,078

Persistency (twelve months ended September 30)

82.7

%

85.0

%

(1)

Radian reinsures the middle layer risk positions, while
retaining a significant portion of the total risk comprising the
first loss and most remote risk positions.

(2)

Included in primary risk in force.

FORWARD-LOOKING STATEMENTS

All statements in this press release that address events, developments
or results that we expect or anticipate may occur in the future are
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934 and the United States (“U.S.”) Private Securities Litigation Reform
Act of 1995. In most cases, forward-looking statements may be identified
by words such as “anticipate,” “may,” “will,” “could,” “should,”
“would,” “expect,” “intend,” “plan,” “goal,” “contemplate,” “believe,”
“estimate,” “predict,” “project,” “potential,” “continue,” or the
negative or other variations on these words and other similar
expressions. These statements, which may include, without limitation,
projections regarding our future performance and financial condition,
are made on the basis of management's current views and assumptions with
respect to future events. Any forward-looking statement is not a
guarantee of future performance and actual results could differ
materially from those contained in the forward-looking information. The
forward-looking statements, as well as our prospects as a whole, are
subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward-looking statements
including:

Losses in our mortgage insurance and financial guaranty
businesses have reduced Radian Guaranty's statutory surplus and
increased Radian Guaranty's risk-to-capital ratio; additional losses
in these businesses, without a corresponding increase in new capital
or capital relief, would further negatively impact this ratio, which
could limit Radian Guaranty's ability to write new insurance and
increase restrictions and requirements placed on Radian Guaranty.

We and our insurance subsidiaries are subject to comprehensive, detailed
regulation by the insurance departments in the states where our
insurance subsidiaries are licensed to transact business. These
regulations are principally designed for the protection of our insured
policyholders rather than for the benefit of investors. Insurance laws
vary from state to state, but generally grant broad supervisory powers
to state agencies or officials to examine insurance companies and
enforce rules or exercise discretion affecting almost every significant
aspect of the insurance business, including the power to revoke or
restrict an insurance company's ability to write new business.

The GSEs and state insurance regulators impose various capital
requirements on our insurance subsidiaries. These include
risk-to-capital ratios, risk-based capital measures and surplus
requirements that potentially limit the amount of insurance that each of
our insurance subsidiaries may write. The GSEs and our state insurance
regulators also possess significant discretion with respect to our
insurance subsidiaries. Our failure to maintain adequate levels of
capital, among other things, could lead to intervention by the various
insurance regulatory authorities or the GSEs, which could materially and
adversely affect our business, business prospects and financial
condition.

Under state insurance regulations, Radian Guaranty is required to
maintain minimum surplus levels and, in certain states, a minimum amount
of statutory capital relative to the level of risk in force, or
“risk-to-capital.” Sixteen states (the risk-based capital or “RBC
States”) currently impose a statutory risk-based capital requirement
(the “Statutory RBC Requirement”), the most common of which requires
that a mortgage insurer's risk-to-capital ratio not exceed 25 to 1. In
some of the RBC States (the “MPP States”), Radian Guaranty is required
to maintain a minimum policyholder position (the “MPP Requirement”).
Unless an RBC State grants a waiver or other form of relief, if a
mortgage insurer is not in compliance with the Statutory RBC Requirement
of an RBC State, it may be prohibited from writing new mortgage
insurance business in that state. Radian Guaranty's domiciliary state,
Pennsylvania, is not one of the RBC States. In 2011, and during the nine
months ended September 30, 2012, the RBC States accounted for
approximately 50.5% and 54.7%, respectively, of Radian Guaranty's total
primary new insurance written.

As a result of ongoing losses, Radian Guaranty's risk-to-capital ratio
has increased to 20.1 to 1 as of September 30, 2012. The ultimate amount
of losses we incur and the timing of these losses will depend, in part,
on general economic conditions and other factors, including the health
of credit markets, home prices and unemployment rates, all of which are
difficult to predict and beyond our control. Based on our current
projections, we expect Radian Guaranty's risk-to-capital ratio to
continue to increase. Absent any further risk-to-capital support, we
expect Radian Guaranty to exceed the 25 to 1 risk-to-capital ratio
requirement during 2013 and the MPP Requirement in two states as early
as of the end of 2012. Each of the MPP States has issued to Radian
Guaranty a waiver of its MPP Requirement, subject to certain conditions
discussed below.

Our mortgage insurance incurred losses are driven primarily by new
mortgage insurance defaults and adverse development in the assumptions
used to determine our loss reserves. Establishing loss reserves in our
businesses requires significant judgment by management with respect to
the likelihood, magnitude and timing of anticipated losses. This
judgment has been made more difficult in the current period of prolonged
economic uncertainty. Our estimate of the percentage of defaults that
ultimately will result in a paid claim (the “default to claim rate”) is
a significant assumption in our reserving methodology. Our assumed
aggregate weighted average default to claim rate (which incorporates the
expected impact of rescissions and denials) was approximately 43% for
2011 and 46% as of September 30, 2012. Assuming all other factors remain
constant, for each 1% increase in our aggregate weighted average default
to claim rate as of September 30, 2012, incurred losses would increase
by approximately $56 million. Radian Guaranty's statutory capital would
be reduced by the after-tax impact of these incurred losses. Our level
of incurred losses is also dependent on our estimate of anticipated
rescissions and denials, including our estimate of the likely number of
successful challenges to previously rescinded policies or claim denials,
among other assumptions. If the actual losses we ultimately realize are
in excess of the loss estimates we use in establishing loss reserves, we
may be required to take unexpected charges to income, which could
adversely affect our statutory capital position and increase Radian
Guaranty's risk-to-capital ratio.

If Radian Guaranty is not in compliance with a state's applicable
Statutory RBC Requirement, it may be prohibited from writing new
business in that state until it is back in compliance or it receives a
waiver of or similar relief from the requirement from the applicable
state insurance regulator, as discussed in more detail below. In those
states that do not have a Statutory RBC Requirement, it is not clear
what actions the applicable state regulators would take if a mortgage
insurer fails to meet the Statutory RBC Requirement established by
another state. Accordingly, if Radian Guaranty fails to meet the
Statutory RBC Requirement in one or more states, it could be required to
suspend writing business in some or all of the states in which it does
business. In addition, the GSEs and our mortgage lending customers may
decide not to conduct new business with Radian Guaranty (or may reduce
current business levels) or impose restrictions on Radian Guaranty while
its risk-to-capital ratio remained at elevated levels. The franchise
value of our mortgage insurance business would likely be significantly
diminished if we were prohibited from writing new business or restricted
in the amount of new business we could write in one or more states.

Radian Guaranty's risk-to-capital position also is dependent on the
performance of our financial guaranty portfolio. During the third
quarter of 2008, we contributed our ownership interest in Radian Asset
Assurance to Radian Guaranty. While this reorganization provided Radian
Guaranty with substantial regulatory capital and dividends, it also
makes the capital adequacy of our mortgage insurance business dependent,
to a significant degree, on the successful run-off of our financial
guaranty business. Any decrease in the capital support from our
financial guaranty business would therefore have a negative impact on
Radian Guaranty's risk-to-capital position and its ability to remain in
compliance with the Statutory RBC Requirements. If our financial
guaranty portfolio performs worse than anticipated, including if we are
required to establish (or increase) statutory reserves on defaulted
obligations that we have insured, or if we make net commutation payments
to terminate insured financial guaranty obligations in excess of the
then established statutory reserves for such obligations, the statutory
capital of Radian Guaranty also would be negatively impacted.

We actively manage Radian Guaranty's risk-to-capital position in various
ways, including: (1) through internal and external reinsurance
arrangements; (2) by seeking opportunities to reduce our risk exposure
through commutations or other negotiated transactions; (3) by
contributing additional capital from Radian Group to our mortgage
insurance subsidiaries; and (4) by realizing gains in our investment
portfolio through open market sales of securities. Radian Group had
unrestricted cash and liquid investments of $368.3 million as of
September 30, 2012, which amount includes approximately $38.7 million of
future expected corporate expenses and interest payments that have been
accrued for and paid by certain subsidiaries to Radian Group as of that
date. Radian Group currently has $79.4 million of outstanding debt that
will come due in February 2013 and an additional $250 million of
outstanding debt due in 2015. Our remaining available liquidity may be
used to further support Radian Guaranty's risk-to-capital position.
Depending on the extent of our future statutory incurred losses in our
mortgage insurance subsidiaries and in Radian Asset Assurance, as well
as the level of new insurance written and other factors, the amount of
capital contributions required for Radian Guaranty to remain in
compliance with the Statutory RBC Requirements could be substantial and
could exceed amounts available at Radian Group.

Our ability to continue to reduce Radian Guaranty's risk through
affiliated reinsurance arrangements may be limited. These arrangements
are subject to regulation by state insurance regulators who could decide
to limit, or require the termination of, such arrangements. In addition,
certain of these affiliated reinsurance companies currently are
operating at or near minimum capital levels and have required, and may
continue to require, additional capital contributions from Radian Group
in the future. One of these affiliated insurance companies, which
provides reinsurance to Radian Guaranty for coverage in excess of 25% of
certain loans insured by Radian Guaranty, is a sister company of Radian
Guaranty, and therefore, any contributions to this insurer would not be
consolidated with Radian Guaranty's capital for purposes of calculating
Radian Guaranty's risk-to-capital position. In addition, we must obtain
prior approval from one or both of the GSEs to enter into new, or to
modify existing, reinsurance arrangements. If we are limited in, or
prohibited from, using reinsurance arrangements to reduce Radian
Guaranty's risk, it would adversely affect Radian Guaranty's
risk-to-capital position.

In order to maximize our financial flexibility, we have applied for
waivers or similar relief for Radian Guaranty in each of the RBC States.
Of the 16 RBC states, New York does not possess the regulatory authority
to grant waivers and Iowa, Kansas and Ohio have declined to grant
waivers to Radian Guaranty. In addition, Oregon has indicated that it
will not consider our waiver application until such time that Radian
Guaranty has exceeded its Statutory RBC Requirement. Of the remaining 11
RBC States, Radian Guaranty has received waivers or similar relief from
the following ten states: Illinois, Kentucky, Wisconsin, Arizona,
Missouri, New Jersey, North Carolina, California, Florida and Texas.
Certain of these waivers contain conditions, including requirements that
Radian Guaranty's risk-to-capital ratio may not exceed a revised maximum
ratio, ranging from 30 to 1 up to 35 to 1. Radian Guaranty has one
remaining application that is pending in Idaho. There can be no
assurance that: (1) Radian Guaranty will be granted a waiver in Idaho or
Oregon, the remaining RBC States; (2) for any waiver granted, such
regulator will not revoke or terminate the waiver, which the regulator
generally has the authority to do at any time; (3) for any waiver
granted, it will be renewed or extended after its original expiration
date, which in the case of four of these waivers is December 31, 2012;
or (4) additional requirements will not be imposed as a condition to
such waivers or their renewal or extension and, if so, whether we will
be able to comply with such conditions.

In addition to filing for waivers in the RBC States, we intend to write
new first-lien mortgage insurance business in Radian Mortgage Assurance
Inc. (“RMAI”) in any RBC State that does not permit Radian Guaranty to
continue writing insurance while it is out of compliance with applicable
Statutory RBC Requirements. RMAI is a wholly-owned subsidiary of Radian
Guaranty and is licensed to write mortgage insurance in each of the
fifty states and the District of Columbia. In February 2012, RMAI
received approval from Fannie Mae to write new mortgage insurance
business in any RBC State where Radian Guaranty would be prohibited from
writing new business if it were not in compliance with the state's
Statutory RBC Requirement without a waiver or other similar relief (the
“Fannie Mae Approval”). Also in February 2012, Freddie Mac approved RMAI
(the “Freddie Mac Approval” and together with the Fannie Mae Approval,
the “GSE Approvals”) to write business in those RBC States for which we
have been denied a waiver (New York, Ohio, Iowa, Kansas and Oregon,
subject to our filing for a waiver in Oregon upon breach of the
Statutory RBC Requirement in that state). Because our application for a
waiver is pending in Idaho, Freddie Mac has not yet authorized RMAI to
write business in that state.

These approvals are temporary (the Fannie Mae Approval expires on
December 31, 2013, and the Freddie Mac Approval expires on December 31,
2012) and are conditioned upon our compliance with a broad range of
conditions and restrictions, including without limitation, minimum
capital and liquidity requirements, a maximum risk-to-capital ratio of
20 to 1 for RMAI, restrictions on the payment of dividends and
restrictions on affiliate transactions involving Radian Guaranty or
RMAI. Under the GSE approvals, Radian Group is also required to
contribute $50 million of additional capital to RMAI (which may be made
on or before February 27, 2013 under the current terms of the Fannie Mae
Approval) if Radian Guaranty's risk-to-capital ratio exceeds applicable
Statutory RBC Requirements. There can be no assurance that: (1) we will
be able to comply with the conditions imposed by the GSEs' approval for
RMAI; (2) the GSEs will not revoke or terminate their approvals, which
they generally have the authority to do at any time; (3) the approvals
will be renewed or extended after their original expiration dates; or
(4) additional requirements will not be imposed as a condition to such
on-going approvals, including their renewal or extension.

The GSE Approvals are limited to the RBC States. It is possible that if
Radian Guaranty were not able to comply with the Statutory RBC
Requirements of one or more states, the insurance regulatory authorities
in states other than the RBC States could prevent Radian Guaranty from
continuing to write new business in such states. If this were to occur,
we would need to seek approval from the GSEs to expand the scope of
their approvals to allow RMAI to write business in states other than the
RBC States.

Our existing capital resources may not be sufficient to successfully
manage Radian Guaranty's risk-to-capital ratio. Our ability to utilize
waivers and RMAI to continue to write business if our risk to capital
position is not in compliance with Statutory RBC Requirements is subject
to conditions that we may be unable to satisfy. As a result, even if we
are successful in implementing this strategy, additional capital
contributions or other risk-to-capital support or relief could be
necessary, which we may not have the ability to provide. Further,
regardless of the waivers and the GSEs' approval of RMAI, we may choose
to use our existing capital at Radian Group to maintain compliance with
the Statutory RBC Requirements. Depending on the extent of our future
incurred losses along with other factors, the amount of capital
contributions that may be required to maintain compliance with the
Statutory RBC Requirements could be significant and could exceed all of
our remaining available capital. In the event we contribute a
significant amount of Radian Group's available capital to Radian
Guaranty and RMAI, our financial flexibility would be significantly
reduced, making it more difficult for Radian Group to meet its
obligations in the future, including future principal payments on our
outstanding debt.

Other risks and uncertainties that could cause actual results to differ
materially from those contained in the forward-looking statements
include the following:

changes in general economic and political conditions, including high
unemployment rates and continued weakness in the U.S. housing and
mortgage credit markets, the U.S. economy reentering a recessionary
period, a significant downturn in the global economy, a lack of
meaningful liquidity in the capital or credit markets, changes or
volatility in interest rates or consumer confidence and changes in
credit spreads, each of which may be accelerated or intensified by,
among other things, legislative activity or inactivity or further
actual or threatened downgrades of U.S. credit ratings;

changes in the way customers, investors, regulators or legislators
perceive the strength of private mortgage insurers or financial
guaranty providers, in particular in light of developments in the
private mortgage insurance and financial guaranty industries in which
certain of our former competitors have ceased writing new insurance
business and have been placed under supervision or receivership by
insurance regulators;

catastrophic events or economic changes in geographic regions,
including governments and municipalities, where our mortgage insurance
exposure is more concentrated or where we have financial guaranty
exposure;

our ability to maintain sufficient holding company liquidity to meet
our short- and long-term liquidity needs, including in particular, the
repayment of our long-term debt and additional capital contributions
that may be required to support our mortgage insurance business;

a further reduction in, or prolonged period of depressed levels of,
home mortgage originations due to reduced liquidity in the lending
market, tighter underwriting standards, and general reduced housing
demand in the U.S., which may be further exacerbated by regulations
impacting home mortgage originations, including the risk retention
requirements established under the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”);

the potential adverse impact on the mortgage origination market and
private mortgage insurers due to increases in capital requirements for
banks and bank holding companies for mortgage loans under proposed
interagency rules to implement the third Basel Capital Accord (“Basel
III”), including in particular, the possibility that loans insured by
the Federal Housing Administration (“FHA”) will receive a more
advantageous capital treatment than loans with private mortgage
insurance;

our ability to maintain an adequate risk-to-capital position and
surplus requirements in our mortgage insurance business, including if
necessary, our ability to write new mortgage insurance while
maintaining a capital position that is in excess of risk-based capital
limitations imposed in certain states, either through waivers of these
limitations or through use of another mortgage insurance subsidiary,
and the possibility that state regulators could pursue regulatory
actions or proceedings, including possible supervisory or receivership
actions, against Radian Guaranty Inc. (“Radian Guaranty”), in the
event Radian Guaranty's risk-to-capital position exceeds levels that
are acceptable to such regulators;

the ability of our primary insurance customers in our financial
guaranty reinsurance business to provide appropriate surveillance and
to mitigate losses adequately with respect to our assumed insurance
portfolio;

a more rapid than expected decrease in the level of insurance
rescissions and claim denials from the current elevated levels, which
have reduced our paid losses and resulted in a significant reduction
in our loss reserves, including a decrease in rescissions or denials
resulting from an increase in the number of successful challenges to
previously rescinded policies or claim denials, or caused by the
government-sponsored entities (“GSEs”) intervening in mortgage
insurers' loss mitigation practices, including settlements of disputes;

the negative impact our insurance rescissions and claim denials or
claim curtailments may have on our relationships with customers and
potential customers, including the potential loss of business and the
heightened risk of disputes and litigation;

the need, in the event that we are unsuccessful in defending our
rescissions, denials or claim curtailments, to increase our loss
reserves for, and reassume risk on, rescinded or denied loans, and to
pay additional claims, including amounts previously curtailed;

any disruption in the servicing of mortgages covered by our insurance
policies and poor servicer performance;

adverse changes in the severity or frequency of losses associated with
certain products that we formerly offered (and which remain in our
insured portfolio) that are riskier than traditional mortgage
insurance or financial guaranty insurance policies;

a decrease in persistency rates of our mortgage insurance policies,
which has the effect of reducing our premium income without a
corresponding decrease in incurred losses;

an increase in the risk profile of our existing mortgage insurance
portfolio due to the refinancing of existing mortgage loans for only
the most qualified borrowers in the current mortgage and housing
market;

changes in the criteria for assigning credit or similar ratings,
further downgrades or threatened downgrades of, or other ratings
actions with respect to, our credit ratings or the ratings assigned to
any of our rated insurance subsidiaries at any time, including in
particular, the credit ratings of Radian Group Inc. (“Radian Group”)
and the financial strength ratings assigned to Radian Guaranty;

heightened competition for our mortgage insurance business from others
such as the FHA, the Department of Veterans Affairs (“VA”) and other
private mortgage insurers (in particular, the FHA and those private
mortgage insurers that have been assigned higher ratings than we have,
that may have access to greater amounts of capital than we do, or that
are new entrants to the industry and are therefore not burdened by
legacy obligations);

changes in the charters or business practices of, or rules or
regulations applicable to, Federal National Mortgage Association
(“Fannie Mae”) and Freddie Mac, the largest purchasers of mortgage
loans that we insure, and our ability to remain an eligible provider
to both Fannie Mae and Freddie Mac;

changes to the current system of housing finance, including the
possibility of a new system in which private mortgage insurers are not
required or their products are significantly limited in effect or
scope;

the effect of the Dodd-Frank Act on the financial services industry in
general and on our mortgage insurance and financial guaranty
businesses in particular, including whether and to what extent loans
with mortgage insurance are considered “qualified residential
mortgages” for purposes of the Dodd-Frank Act securitization
provisions or “qualified mortgages” for purposes of the ability to
repay provisions of the Dodd-Frank Act, and the possibility that the
ultimate definitions of “qualified residential mortgages” and
“qualified mortgages” could reduce the size of the mortgage market and
potentially reduce the number of insurable loans;

the application of existing federal or state laws and regulations, or
changes in these laws and regulations or the way they are interpreted,
including, without limitation: (i) the resolution of existing, or the
possibility of additional, lawsuits or investigations; and
(ii) legislative and regulatory changes (a) impacting the demand for
private mortgage insurance, (b) limiting or restricting the products
we may offer or increasing the amount of capital we are required to
hold, (c) affecting the form in which we execute credit protection, or
(d) impacting our existing financial guaranty portfolio;

the amount and timing of potential payments or adjustments associated
with federal or other tax examinations;

the possibility that we may fail to estimate accurately the
likelihood, magnitude and timing of losses in connection with
establishing loss reserves for our mortgage insurance or financial
guaranty businesses or premium deficiencies for our mortgage insurance
business, or to estimate accurately the fair value amounts of
derivative instruments in determining gains and losses on these
instruments;

volatility in our earnings caused by changes in the fair value of our
assets and liabilities carried at fair value, including our derivative
instruments;

our ability to realize the tax benefits associated with our gross
deferred tax assets, which will depend on our ability to generate
sufficient sustainable taxable income in future periods;

changes in accounting principles, rules and guidance, or their
interpretation; and

legal and other limitations on amounts we may receive from our
subsidiaries as dividends or through our tax- and expense-sharing
arrangements with our subsidiaries.

For more information regarding these risks and uncertainties as well as
certain additional risks that we face, you should refer to the Risk
Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K
for the year ended December 31, 2011, Item 1A of Part II of our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and
subsequent reports and registration statements filed from time to time
with the U.S. Securities and Exchange Commission.